Why would I want to set up a trust?
It's a common belief that trusts are the exclusive preserve of the very wealthy who use them to avoid paying tax. While there may be more than a grain of truth in this statement, trusts are incredibly useful devices for all sorts of people. Simply put: a trust is a really flexible and effective way to make a gift.
Although changes to tax laws in recent years have made it somewhat less attractive for a person to create a trust during his lifetime, trusts continue to be a useful means of giving away assets on death.
A trust also enables a person to give assets to a class of people, some of whom may not yet be born. For instance, a grandmother could put assets in trust for the benefit of her "grandchildren" to ensure both her existing grandchildren and any born after the date of the gift are provided for.
A trust can also be used to separate an asset (e.g., a house) from the income it produces and give each to different people. For example, a trust could provide that one beneficiary be entitled to rental income from a house for a period of time, with another beneficiary getting the property itself at a later date.
A trust can also be used to create "life interests". One can give a beneficiary the right to occupy a particular property for life, and then have the property pass to someone else after the first beneficiary dies.
Finally, an adult may use a trust to put aside money for the benefit of young people who are not yet responsible enough to manage it. The terms of the trust could state that the beneficiaries receive interest on the money until the age of, say, 25. Thereafter, they would be able to take all the money out of the trust and do with it as they please.
Most trusts will require some degree of administration, which will include the management of trust investments, regular accounting for trust assets and income, the preparation and filing of tax returns, and the processing of any payments or other distributions to beneficiaries.
This overview outlines the inheritance tax, capital gains tax, and income tax implications arising on (i) creation of a trust, (ii) during the lifetime of a trust, and (iii) in subsequent transactions involving trust assets.
In selecting a trustee for an estate-planning trust, it is important to remember at the outset that the individual (and/or trust company) you select is someone that you or the trust's beneficiaries are likely to be working with over a period of many years.
Here are some ideas about how to find the resources you need in order to set up a trust, put together a broader estate plan (which may include a trust), or, if you are a trustee, to get answers to questions about your obligations and how to carry them out.
For most trusts, the income tax rate the trustees have to pay depends on whether the trust is a discretionary trust (which is able to accumulate income) or an interest in possession trust (which must pay out all income to the beneficiaries).
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Whether you are already involved in a lawsuit, or just considering getting help with a legal issue, you may have questions about working with a solicitor. Click through to find practical tips on choosing, meeting with, and hiring a solicitor - including information on fee agreements and expenses.